Israel’s Flag Carrier El Al Airlines On Verge Of Collapse, Pleads For Government Bailout

El Al Airlines, Israel’s flagship carrier, has been warned by its auditors that it may not survive the coronavirus pandemic.

The carrier – which belatedly released its latest financial report – posted a $31.5 million loss in the fourth quarter of 2019 (well before the pandemic shut down global air travel).

For the full year, the airline incurred a loss of $60 million, versus a loss of $52 million for 2018.

The auditors warned: "We draw attention to the repercussions of the spread of the coronavirus, which has resulted in a lack of demand and grounding of the company's scheduled passenger flights with uncertainty reigning on developments in Israel and worldwide about the spread of the virus and the date and pace of the passenger flight market reopening."

The auditors added: "Negotiations with the state and lenders continues and there is uncertainty about their completion. As the receipt of loans is essential for the company to cope with the results of the virus, there exists major doubt in the continued existence of the company as a going concern."

El Al has placed 90% of workers on unpaid leave and cut the salaries of its management and the board by 20%.

El Al, which shut down its flights in March, has pleaded for an Israeli government-backed loan to save it from collapse.

This week the Israeli Treasury offered to guarantee 80% of a $400 million loan to be provided by commercial banks. However, in exchange for the funds, the Treasury demanded stringent conditions that the airline said it might not be able to meet.

The airline’s CEO Gonen Usishkin has asked the government for help.

"El Al is one of the most significantly hit companies in the Israeli economy by the coronavirus, and therefore we turned to the government to assist El Al as has been done in most countries worldwide” Usishkin said. “In recent months, El Al's management has worked around the clock to implement a range of operational and financial measures to reduce the company's expenditure, maintain liquidity and allow it to operate."

Usishkin added: "We were forced to ground the company's main operations, flying passengers, due to the government's instructions and we are operating our widebodied passenger aircraft and cargo aircraft in the cargo sector. We have formed a streamlining plan which will allow the company to operate in the coming years and return to profitability -- but these steps are not sufficient without Israeli government support."

In a direct plea to Prime Minister Benjamin Netanyahu, the El Al CEO declared: "As prime minister, you carry the ultimate responsibility for that, after seventy-two years, El Al will finish its journey on your watch."

Usishkin reiterated to Netanyahu that the government’s bailout conditions were impossible to satisfy and would likely force the liquidation of the airline.

“The Finance Ministry raised additional demands that cannot be implemented, the sole purpose of which is to lead to the liquidation of El Al,” Usishkin wrote to Netanyahu.

The government has countered that the airline has a bloated workforce, pays high salaries and has a weak balance sheet.

A government-secured loan would likely require El Al to drastically cut costs by laying off about 2,000 workers, or one-third of its workforce. Such job cuts would have to be approved by El Al’s employees’ union.

Usishkin further warned that the airline’s liquidation could jeopardize Israel’s national security by ending the independence of its aviation industry.

“El Al finds itself in a situation of unprecedented difficulty due to no fault of its own,” he wrote. “The Finance Ministry’s claims that El Al’s difficulties and need for a loan are due to its pre-crisis management are without foundation and have no grip on reality.”